Pakistan and Chinese power companies are preparing to sign significant agreements on debt reprofiling and a payment moratorium exceeding $16 billion during Chinese Prime Minister Li Qiang’s visit.
According to reports, these agreements will target foreign currency (FCY) debt related to nine power generation projects and a transmission line under the China-Pakistan Economic Corridor (CPEC).
The draft Memorandums of Understanding (MoUs) expected to be signed include key terms such as extending the repayment period of FCY loans by five years, implementing a three-year moratorium on principal payments, and potentially adjusting the base currency and interest rates. These measures aim to alleviate the financial strain on Pakistan’s power sector, which is facing rising costs.
On Pakistan’s side, the Private Power and Infrastructure Board (PPIB) will lead the signing, with Chinese companies involved in the negotiations. These MoUs are crucial for stabilizing Pakistan’s power sector, which has seen increased consumer tariffs due to soaring costs.
The government of Pakistan, struggling with high electricity prices, has proposed debt restructuring to manage costs. The goal is to reduce the burden on consumers, with current CPEC debt repayments extending to 2041.
Pakistan’s Energy and Finance Ministers visited China in July 2024 to discuss the restructuring, leading to the formation of a task force to evaluate options. Consultants from China International Capital Corporation (CICC) and Habib Bank Limited (HBL) were involved in drafting the MoUs.
Reports estimate Pakistan’s outstanding CPEC-related debt at $1.63 billion for 2024, gradually reducing until 2041. The proposed five-year extension would increase total repayment from $15.4 billion to $16.62 billion, easing the repayment burden over a longer period.
The Power Division has sought legal consultation, and the MoUs will need Federal Cabinet approval before they can be formalized.
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